Argentina’s Tax Regime: What Should Every Investor Know?

Close look into Argentina’s tax system: New goverment’s reforms open a much simpler and more beneficial way for foreign investors. This memorandum from our member firm Estudio Willa explains the tax system of the country for both citizens and foreigners with deep details and comparison.

Main Guidelines for the Agentina’s Tax System for Foreign Investors.

In the Argentine Republic the structure of the Tax System is mainly based on the taxes imposed on the patrimony, income and consumption. Taxes are imposed on four State levels: National, Provincial, Municipal and the ones imposed by the Self-governed City of Buenos Aires. This division of powers is ruled by the Government Federal Regime embodied in the National Constitution. The Legislative Power of each one of the levels is the body that has the power to create taxes regulating the essential elements of the taxable events. Furthermore, it must also be stated that through Act 23,548 the sharing of National taxes toward local States is regulated.
The main National taxes are the following: the Income tax, Value Added Tax, tax on Minimum Presumed Income, tax on one`s Individual Property and the tax on Debits and Credits in Bank Accounts and on other operations. Meanwhile, the Provincial Administrations obtain their resources mainly from the Gross Income Tax, Seals Tax and the Real Property Tax. Finally the Municipal entities raise taxes on the basis of Rates and Contributions. Herein below, there will be a short summary of its main characteristics. Nevertheless, it is important to highlight that although the essential taxes within each Governmental Stage shall be dealt with, there exist other taxes that depending on the activity to develop by the firm, are necessary to be taken into account, for example, Customs taxes, taxes on liquid fuels and natural gas, taxes tending to the financing of social security, taxes on the transfer of real property and environmental taxes, among others.

National Taxes

Income Taxes.
It is a direct tax, of a progressive nature for persons of physical existence and proportional for firms as subjects. Persons of physical existence, legal persons, subjects that are not firms and undivided estates are considered persons from the legal point of view. Those who qualify as residents, according to the Income Tax Law, shall pay taxes on the Income obtained both inside the country and abroad – world Income criteria-. On the contrary, non-residents are called Beneficiaries from Abroad, and they enjoy the special treatment described in chapter IX of the act, and who only pay taxes on their Income obtained in Argentina. The source of the Argentine definition is found in sections 5 and 16 of the “LIG” and section 9 of the DRLIG. There are also special situations that the legislator considers as an Argentine source, and they are the following: the credits secured by real property on property located within the country and exports. Furthermore, the regulations also refer to a number of presumptions of net earnings of an Argentine source, to which an aliquot of 35% on the percentage of the imputed income is applied. It is about activities such as international transportation, the operations with containers, the agencies of international news, insurance, fees and other remunerations received from abroad or abroad, and motion pictures, radio and television transmissions, etc..
The persons of physical existence that are residents, pay taxes by means of a progressive rate that ranges between 9% and 35% considering worldwide income, and the expenses and/or concepts considered by the regulations are deducted. The non resident subjects shall only pay taxes on their income of an Argentine source.
The subjects that are resident firms pay taxes on the basis of their patrimonial increase taking into account the criterion of a world income, calculated on the returns, benefits or income. It is possible to deduct, among other concepts, the sums of money effectively paid for similar charges on the activities carried out abroad, up to the limit of the increase of the tax obligation for having incorporated it to its sworn statement in Argentina. The aliquot applied to them is 35%.

A non resident firm without a branch or other permanent office within the country, pays taxes on the income of an Argentine source. The tax is withheld on the net profit (a rate of 35%), as a single and final payment by the paying subject in Argentina, who pays the pertaining amount into the Government coffers.
As regards international operations, the State foresees in the above mentioned Income Tax Act, a control procedure tending to avoid the elusion or avoidance of the tax by the economic groups, who may alter the price of the transactions sending profits and earnings abroad considerably diminishing the income of the tax in Argentina. That is why specific methods are foreseen to establish if the price is coherent with the normal market price between independent parties, in similar circumstances, with the possibility to carry out the relevant adjustments if this were not the case. The methods to be applied depend on the type of operation in question and the quantity and quality of the comparable information available. This is what is called Transference Prices.
The operations included are: those carried out with related persons or entities incorporated, domiciled, settled or located abroad and that are corporations, companies incorporated in the country or sole-proprietorships located therein, trusts in which the settlor or trustor is the beneficiary at the same time or when the settlor-beneficiary is a beneficiary from abroad; those operations carried out by persons of real existence or legal persons domiciled, incorporated or located in countries of low or null taxation, there being a link between them or not. This also applies to residents in the country who carry out operations with stable establishments located abroad, owned by them; and also for the operations that these latter ones performed with persons or other type of related entities domiciled, organized or located abroad, under the terms set forth in sections 129 and 130 of the Income Tax Law.
Lastly, it is important to point out that the National Argentine Congress toward the end of the year 2013 passed an important reform with relation to the sale of redeemable personal property, sale of shares, quota shares, company shares, titles, bonds and other securities which do not quote at the stock exchanges and/or commercial markets or which are not open to a public offer; and for dividends and earnings distribution, in money or in kind.

Act 26,893 and its Regulation 2334/13 are in force and the system applies both to resident subjects and subjects from abroad.
The tax under discussion is the most complex one within the tax system of the country, therefore it is fundamental to receive suitable accounting legal counseling to diagram the relevant tax planning, taking into account both the feasibility or profitability of the entrepreneurial project.

Value Added Tax.
The VAT is an indirect, instant, non-cumulative tax that is applied to the sale price of property and/or services in each stage of production and commercialization, with the possibility to consider as down payments, the sums paid of this tax in the previous stages. The VAT general aliquot is 21%, there being differentiated aliquots, 10.5% is the lowest which is applied to capital assets, transport –except for international travels, the sale of newspapers, magazines, leaflets, journals, pre-paid medicine programs, interests on domestic and foreign loans.
The tax imposed is estimated on the basis of the sale of personal property, the works, the leases and the rendering of the services provided within the National territory.
It must be pointed out that the property and services exported are not included in this tax. The exporting firms may request the return of the VAT that has fallen upon the imported product, derived from supplies or services. Special mentioning deserve the services rendered within this territory, which shall be considered as exported if they have been effectively provided and have been economically exploited outside the territory of the country.

Minimum Presumed Income Tax
It is a direct tax, it is applied on the assets located in the country and abroad, valued pursuant to the provisions of the pertaining act, belonging to, among other subjects, the companies and stable establishments domiciled in the country. The tax aliquot is 1% on such assets. In the case of financial entities or insurance companies, the act allows to consider, as the tax basis of the encumbrance, the 20% of the value of the taxed assets. On the other hand when the subjects are livestock, fruit and product consignees, the burden taxable basis is 40% on the taxable assets, only if these are exclusively affected by the consignment activity. This tax is complementary to the income tax enabling the tax payer to consider it as a down payment of the minimum presumed income tax. If the given Income Tax turns out to be higher than the Minimum Presumed Income Tax, only the former is paid. If on the contrary, the Minimum Presumed Income Tax is higher than the given Income Tax, the surplus can be used up to 10 years later to compensate the potential surplus of the Income Tax determined on the burden mentioned first. The calculation of a tax credit for similar taxes paid abroad for property located outside the Argentine territory is accepted. Furthermore, it is pertaining to pay advances on account with reference to the tax effectively determined in each fiscal period.

Tax on a Person´s Individual Property
This a tax that globally affects the property existing as of December 31st of each year that belongs to persons of physical existence and property that forms part of an undivided succession estate located in the country and abroad by means of progressive rates equivalent to: 0.5% of his property if its value ranges between $305,000 and $750,000; 0.75% of the value of the property when its value ranges between 750,000 and $2,000,000; and 1% when it is between $2,000,000 and $5,000,000. Above this amount, the aliquot amounts to 1.25%.
The share-holding and capital interest in any company type regulated by the Company´s Act shall be excluded from the tax, except for sole-proprietorship firms and holdings.

Non-resident subjects pay taxes on the property located in the country. The tax regime applied is that of Substitute Responsible and the rate is 1.25%. In the case of non-resident legal persons, direct share-holders or holders of interest or participations in local companies of any type, the law presumes, without admitting any evidence to the contrary, that the same belong in an indirect way, to persons of physical existence domiciled abroad or to undivided succession estates therein located. The aliquot applied in this case is 0.5%.
A payment on account is foreseen for the sums effectively paid abroad for similar taxes that form part of the taxable basis of the patrimony or of the property in a global manner.

Domestic Taxes
This tax is imposed exclusively on the consumption of specific goods and services identified exhaustively by legal rules with different aliquots. This is an indirect tax, since it forms part of the price of the object. This is the tax that can almost never be avoided, its purpose is to discourage the consumption of luxury products or those that are dangerous for health. The main products reached by this tax are: cigarettes, alcoholic drinks, services of cellular and satellite telephones, motor vehicles and engines, boats, electronic products, etc.

Taxes on Debits and Credits in Banking Credit Accounts
All credits and debits in banking current accounts opened with financial entities are subjected to taxes; certain operations in which a current account is not used, carried out by financial entities; and movements or delivery of one´s own funds or those that belong to third parties carried out by themselves or third parties.
The general aliquot is 6 per one thousand for the debits and credits in banking current accounts and 12 per one thousand for the rest of the operations and is applied on the gross amount of debits, credits and taxed operations. Lower aliquots are foreseen for specific subjects, such as brokers and grain commission agents, firms that operate systems of credit

cards, purchase and debit cards, or that operate systems of electronic transfers through Internet, and collateral trusts in which the trustee is the financial entity ruled by Act 21,526. The financial entities act as withholding tax agents.
There are exemptions applied to specific operations.

Provincial Taxes

Gross Income Tax
This tax is of great importance for the Provinces since it constitutes its main source of income. It influences all the stages of the economic cycle of the property or service. It imposes taxes on the exercise of agricultural, financial, professional, industrial and/or commercial activity, without allowing the deduction of what has been paid for this tax in the previous stages of the economic cycle of the product or service. The taxable basis is constituted by the gross income derived from such activity. The aliquots vary according to the different jurisdictions that impose the tax and the type of activity affected by the tax. This variation is between 1.5% and 4.0%. Nevertheless, the Provinces and the Self-governed City of Buenos Aires have entered into a Multilateral Inter-jurisdictional agreement with the purpose to avoid multiple taxing on the activities carried out in more than one jurisdiction. It is paid per calendar year, with monthly or bimonthly advances according to each jurisdiction. In general, primary and industrial activities enjoy exemptions.

Real Property Tax
This tax is imposed on the ownership of urban and rural real property in their respective jurisdictions. The taxable basis and aliquots vary according to the different jurisdictions. The taxable basis and the aliquots vary depending on the different jurisdictions and are applied on the fiscal valuation that each one makes of the property. It is calculated pursuant to the tax law of each fiscal period.

This is a direct tax that falls on the patrimony. It was left outside the Federal Co-participation Regime, and has been reserved as a tax remedy under the control of the Provincial jurisdictions.

Seals Tax
By means of this tribute the economic circulation evidenced in an act, contract or onerous operation completed that is formalized in public and private instruments is taxed, and, in general, it is calculated on the economic value of the agreement. The aliquots vary depending on the each jurisdiction. In general, the tax aliquot is 1%, although it varies according to the type of act and the jurisdiction legislation where the act in question produces its effects.
In each one of them several exemptions are foreseen with respect to specific instruments and/or subjects.

Municipal Taxes
Pursuant to the restrictions arising from the Tax Co-participation Law, the Municipal Tax Power is limited. That is why the service compensatory rates for municipal entities acquire great importance. The demands of the local budgets force the creation of numerous and complex rates, many of which are sometimes deemed un-constitutional. Some examples of rates and contributions are the following: public utilities (lightening and cleaning services), occupation of public space, publicity and advertising, the authorization of institutions and premises to operate, inspection, safety and health, etc. The multiplication of these rates and taxes, even when there is no precedent in the municipality and the increase of their aliquots, at present generate a problem to be seriously considered by the firms that operate within the country.

Agreements to avoid double taxation.
Argentina has entered into various Agreements with other countries to avoid Double Taxation (DTA – Double Taxation Agreements). It is important to highlight that according to the provisions set forth by the National Constitution, the DTA, as treaties celebrated with other nations, enjoy a higher hierarchy than laws, therefore they prevail over what is set forth by the latter. In this regard, Argentina has signed and ratified by law DTA with the following countries: Sweden, Germany, Bolivia, France, Brazil, Austria (no longer effective since 1/1/09), Italy, Chile, Spain, Canada, Finland, United Kingdom, Belgium, Denmark, the Netherlands, Australia, Norway, Russia and Switzerland. With the U.S. the Agreement has not yet been ratified by law. Except in the case of the agreements with Chile and Bolivia, in which the Andean Pact model was followed, the OECD model was used. Such agreements provide various mechanisms to reduce or avoid the international double taxation which arises due to the different criteria about the relation between a taxpayer and the relevant taxing authority (the active and passive subject). Such criteria for regulations may refer to:
The Source: the place where the taxable event of the income or the patrimonial element is located is considered to render taxation operational.
Residence: the residence or stay of the subject, where he keeps his house or room, even with no intention of residence is considered.
Citizenship or Nationality: it is a political membership criterion. Those subjects who have citizenship are subject to taxation regardless of their Residence or domicile.

State Department and Religion

By means of Communication A 4237 of the “Banco Central de la República Argentina”, an Informative System of Direct Investment in the country was provided for, and it sets forth the obligation to declare direct investment holding of non-residents in the country when these exceed US$ 500.000, as well as their variations during the reported period. This survey includes all the legal entities that register direct investment holdings of non-

residents, and the managers of real property belonging to non-residents. Holdings of individuals or legal entities that, at the beginning of the reported period, have had investments of this kind and that have settled them during the six months preceding the reference date, are also included.

Promotion Schemes and Incentives for Investment.
Most Argentine Provinces have specific promotion schemes for productive investment within their territories. Provincial promotion schemes include exemptions for a certain period of time, from provincial taxes, reduced utility rates, support for the carrying out of infrastructure works and purchase of equipment, facilities for the purchase and location of property owned by the State, priority in the award of tender bids implemented by the provincial Government and reduction of tariff rates pertaining to the notarization and execution of deeds of sale or transfer of the provincial Government.

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